SKF India - Focus On Localisation To Boost Growth: ICICI Direct

ICICI Direct Report

Key Investment Thesis:

Strongly positioned with wide product offerings and market presence; Focus on high-growth segments:

With a rich experience in design, development and manufacturing of bearings, seals and lubrication systems, SKF India Ltd. is well positioned with its wide range of products and services for its industrial and automotive segments.

Moreover, the company is focusing on highgrowth areas in these segments like electric vehicles, renewable energy, railways, mining etc., where it targets to capture the larger pie of this opportunity and thus increasing its share through optimising product mix and innovative solutions.

Emphasis on continuous advancement of products; Increasing localisation and services and after-market business:

SKF India has a strong focus on continuous advancement of its products and solutions through its ability to continuously develop new technologies and innovation with more localisation of raw materials and manufacturing of products.

Moreover, company is focusing on increasing its services and after-market segment (which contributes ~36% contribution to total revenues). We believe that new product solutions, more localisation and increase in after-market business would help company in improving its overall margins.

Rating and Target Price

• SKF India is well placed to ride the strong demand cycle in domestic bearings market, led by its focus on high-growth sectors, new product developments and increasing localisation of products. We believe company’s operational and financial performance to improve considerably in the coming period.

• We estimate revenue, Ebitda and profit after tax to grow at 15%, 20% and 22.8% compound annual growth rate respectively over FY23-25E.

• We maintain our 'Buy' rating on SKF India. We value the stock at Rs 6400 per share (based on 40 times FY25 earnings per share.)

About the stock:

SKF India, incorporated in 1961, is engaged in manufacturing of bearings, seals, lubrication systems, after-market and other maintenance products.

Company’s ~52% of revenues come from industrial segment while ~41% of revenues come from automotive segment. Balance ~7% of sales is from exports. After-market segment contributes ~36% of total revenue.

Consolidated revenue of SKF India has grown by 14.9% CAGR during the period FY20-23 while Ebitda and profit after tax have grown by 29.0% and 22.0% CAGR respectively over the same period. During FY23, company reported revenues of Rs 4304.9 crore (+17.4% YoY) with Ebitda of Rs 749.3 crore (+34.8% YoY) and profit after tax at Rs 524.5 crore (+32.7% YoY)

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.